Required Minimum Distributions
Jason Stolz CLTC, CRPC
Required Minimum Distributions—commonly known as RMDs—are one of the most important (and often most misunderstood) parts of retirement planning. Once you reach the IRS RMD age, you are required to withdraw a minimum amount from your tax-deferred retirement accounts each year. These mandatory withdrawals affect your taxes, your income plan, your long-term investment strategy, and even the future size of your estate.
Understanding how RMDs work gives you control over your retirement income. Rather than waiting for a surprise tax bill or withdrawing more than you need, a well-structured plan helps you stay compliant, avoid penalties, and use your RMDs strategically to strengthen your financial position. At Diversified Insurance Brokers, we help retirees coordinate RMDs with annuities, Social Security, pensions, and personal savings to create predictable, tax-efficient retirement income.
What Are Required Minimum Distributions?
Required Minimum Distributions are federally mandated withdrawals from traditional retirement accounts, including IRAs, 401k accounts, 403b accounts, 457b accounts, TSP plans, and other tax-deferred vehicles. The IRS taxes these withdrawals because they contain money that previously grew tax-deferred. Once you reach the RMD age, you cannot leave the funds in the account indefinitely—the IRS requires a portion to be withdrawn each year.
The age at which RMDs begin is determined by federal law. Once your first distribution is due, the amount you must withdraw each year is calculated using your account balance from December 31 of the previous year and your IRS life expectancy factor. As your balance fluctuates and as you age, your RMD amount adjusts annually. If you want to understand how these qualified accounts function, review How Does an IRA Work?
How RMDs Affect Your Retirement Income
For many retirees, RMDs become a primary source of taxable income. Even if you don’t need the money, the IRS requires the withdrawal, and the distribution is added to your taxable income for the year. This additional income can influence your tax bracket, Social Security taxation, Medicare premiums, and your overall retirement strategy. For individuals who prefer stability, many use RMDs as part of a structured income plan alongside guaranteed annuity payouts. You can review how annuities behave in retirement here: How Annuities Are Taxed in Retirement.
Some retirees withdraw their RMDs and reinvest them in non-qualified annuities or other stable accounts. Others use the required distributions to cover expenses, purchase long-term care coverage, or fund guaranteed lifetime income. No matter the approach, your strategy should ensure that RMDs strengthen—not derail—your financial plan.
Coordinating RMDs With Annuities
Many retirees wonder whether annuities count toward RMDs. The answer depends on the type of annuity. Qualified annuities funded with IRA or employer-plan rollovers still require RMDs. However, the structure of the annuity determines how the distribution is handled. If you own an income annuity that pays out more than your required minimum amount, those payments may satisfy part—or all—of your annual RMD.
Deferred annuities with income riders operate differently. They continue to grow with deferral bonuses and roll-up rates, but when the account is inside a qualified plan, the RMD must still be met. Many retirees meet the RMD by withdrawing the required amount, while using the annuity for long-term income. Others time their income start date to coincide with RMD age, allowing guaranteed annuity payments to meet the required withdrawals automatically.
If you are considering moving retirement funds into an annuity before your RMDs begin, review the steps here: What Is a Direct Rollover?
What Happens if You Ignore RMDs?
Failing to take an RMD can result in a significant federal penalty. Even though rules have changed over the years, the penalty remains substantial enough to warrant careful planning. For retirees with multiple accounts, the complexity increases: IRA RMDs can be combined and taken from any IRA, but employer plans like 401k and 403b accounts each have their own required distribution rules.
Some retirees consolidate their accounts to make RMD management easier. Others transfer employer plans into an IRA or annuity to streamline distributions and simplify the annual process. If you are trying to coordinate multiple 401k or 403b accounts, start by reviewing how each account operates. For example: How Does a 403b Work? and How Does a 401k Work?
How Required Minimum Distributions Are Calculated
The RMD formula is straightforward, but understanding the factors involved helps you manage the process with confidence. Each year, your RMD is calculated by dividing your retirement account balance (as of December 31 of the previous year) by a life expectancy factor published by the IRS. As your age increases, your life expectancy factor decreases, which means your required distribution amount generally rises each year.
For example, consider Susan, age 75, who has $600,000 in her traditional IRA. If the IRS life expectancy factor for her age is 24.6, her RMD for the year would be $600,000 ÷ 24.6 = $24,390. If the market grows her portfolio the next year, the calculation changes accordingly. This formula applies to all qualified retirement accounts unless an exception or special rule applies.
How RMDs Interact With Your Broader Retirement Plan
A comprehensive income strategy blends RMDs, Social Security, pension benefits, non-qualified savings, and guaranteed annuity income into one coordinated plan. When managed well, RMDs can help fund lifestyle needs while allowing other accounts to grow or remain protected inside guaranteed structures. When managed poorly, they can cause unnecessary taxation or premature depletion of savings.
Some retirees use RMDs to pay for long-term care coverage or to reposition assets into a more predictable income source. Others use RMDs to fund annuities that create lifetime income designed to last well beyond the required distribution years. If you want to see how RMD withdrawals could integrate with guaranteed income, use the calculator below.
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FAQs: Required Minimum Distributions
What is a Required Minimum Distribution?
An RMD is a mandatory withdrawal from tax-deferred retirement accounts once you reach the IRS-required age. It ensures taxes are eventually paid on these accounts.
Which accounts require RMDs?
Traditional IRAs, 401k accounts, 403b accounts, 457b plans, TSP accounts, and other pre-tax retirement vehicles require RMDs. Roth IRAs do not.
How are RMDs calculated?
The IRS divides your prior year-end account balance by your life expectancy factor. The result is the minimum amount you must withdraw for that year.
Do annuities count toward RMDs?
Qualified annuities do. Depending on the annuity structure, income payments may satisfy part or all of your RMD.
What happens if I miss an RMD?
A penalty may apply for failing to withdraw the required amount, though recent rules have adjusted its severity. Timely planning helps prevent issues.
Can I reinvest my RMD?
Yes. Once withdrawn and taxed, RMD funds can be moved into non-qualified annuities or other accounts without restriction.
About the Author:
Jason Stolz, CLTC, CRPC, is a senior insurance and retirement professional with more than two decades of real-world experience helping individuals, families, and business owners protect their income, assets, and long-term financial stability. As a long-time partner of the nationally licensed independent agency Diversified Insurance Brokers, Jason provides trusted guidance across multiple specialties—including fixed and indexed annuities, long-term care planning, personal and business disability insurance, life insurance solutions, and short-term health coverage. Diversified Insurance Brokers maintains active contracts with over 100 highly rated insurance carriers, ensuring clients have access to a broad and competitive marketplace.
His practical, education-first approach has earned recognition in publications such as VoyageATL, highlighting his commitment to financial clarity and client-focused planning. Drawing on deep product knowledge and years of hands-on field experience, Jason helps clients evaluate carriers, compare strategies, and build retirement and protection plans that are both secure and cost-efficient.
